Fair value gap
A fair value gap (FVG) is a gap in price left by a strong, one-sided move. It is found in three candles: in a bullish gap, the low of the third candle sits above the high of the first, so the middle candle's range was crossed in one direction only. A bearish gap is the mirror image. The space between those two wicks is the gap.
Why traders watch it
In smart money concepts, a fair value gap marks an imbalance: price moved so fast that little trading happened inside that range. Traders expect price to often return to the gap later and either fill it or react from it.
How it is used
- Retest entries: wait for price to come back into the gap and hold.
- Fills and breaks: a gap that is fully filled, or broken through, is no longer a reaction zone.
- Confluence: combine the gap with an order block, a break of market structure or a liquidity sweep. A common sequence is a sweep, then a structure shift with a strong candle, then a fair value gap retest.
Like any chart reading, a gap is a probability, not a promise. Backtesting shows how often a gap rule actually works on your market and timeframe.
On Algonney
The fair value gap detector marks three-candle gaps with their high and low and tracks retests, fills and breaks. A strategy can enter on a retest, use the gap's edge for its stop loss, or use the gap as the last step of a sequence.
Related: order block, market structure and Technical analysis.